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Title: Greenhouse%20Gases%20and%20Global%20Climate

Greenhouse Gases and Global Climate
  • Global warming is linked to the accumulation of a
    variety of gases in the atmosphere.
  • These gases, which include carbon dioxide,
    methane, nitrous oxide, and water vapor, trap
    infrared radiation that would normally escape
    from the earths atmosphere into space.
  • This increased gas serves to increase the
    capacity of the atmosphere to absorb heat.
  • There is virtually no debate about this
  • The debate is centers on the magnitude and timing
    of the change in heat absorption and the
    significance to human welfare.

Carbon Cycle
  • The carbon cycle refers to the movement of carbon
    from the atmosphere to the earths surface.
  • Carbon is stored in the biomass of every
  • Carbon dioxide is also dissolved in surface
    water, with the oceans playing the largest role.
  • Carbon dioxide is removed from the earths
    atmosphere when a tree grows.
  • When an animal eats a plant, the carbon is
    transferred from the plant to the animal.
  • When an animal or plant dies, it decays and the
    carbon combines with oxygen to become carbon

Kids Crossing, Cycles of the Earth
Carbon Cycle
  • Anthropogenic activities which upset the carbon
    cycle include burning of fossil fuels or
  • Fossil fuels, such as oil, coal and natural gas,
    are the fossilized remains of prehistoric plants
    and animals and represent stored carbon.
  • Deforestation has two impacts the breakdown of
    carbon in the bi-products of the wood and the
    loss of trees to draw carbon dioxide out of the

Carbon Cycle
  • A process called carbon sequestering involves
    planting new forests to reduce atmospheric carbon
    dioxide concentrations.
  • The greatest opportunity for this is in tropical
    areas where growth rates are the fastest.
  • Opportunities also exist in agriculture, carbon
    can be sequestered in soils and perennial
    cropping systems

Other Greenhouse Gases
  • Methane comes from a variety of anthropogenic and
    natural sources.
  • Natural sources include wetlands and other areas
    where anaerobic decay of organic matter takes
  • Anthropocentric sources include emissions from
    cattle and sheep, wet rice cultivation, emissions
    from coal mines and oil and natural gas wells.
  • Nitrous oxide originates from the burning of
    fossil fuels and biomass and also agricultural

Is Global Warming Increasing?
  • Virtually all evidence suggests very strongly
    that the mean global temperature has increased as
    a result of anthropogenic greenhouse gas
    emissions and that it will continue to increase.
  • All the scientific evidence suggests that there
    will be significant increases in sea level.
  • Many uncertainties exist about the nature of
    regional distribution of global climate change.

Twentieth-Century Changes in the Earths
Atmosphere, Climate, and Biophysical System
  • Evidence comes from many sources
  • Ice core samples of glaciers.
  • Pollen records from sediments in lakes.
  • Human records, some historical and some recent
    and systematic.
  • Intergovernmental Panel on Climate (IPCC) is an
    international scientific agency designed to share
    information and encourage cooperation of
    scientists, fourth assessment completed --- Nobel
    Peace Prize

IPCC Summary Report
What are the Consequences of Global Climate
  • In the 1990s much of the economic literature
    focused on the ability to mitigate damages
    associated with climate change through adaptation
    (for example protecting Manhattan with a sea wall
    or switching agriculture to heat-tolerant
  • While the US has a complex network of land-grant
    universities, government agencies and private
    industries which will work to investigate and
    implement strategies to address climate change,
    this is not true for small farmers in developing
  • In addition, the ability to adapt to change will
    depend on the magnitude of the change.

What are the Consequences of Global Climate
  • Nordhaus (1991) estimated the annual impact on
    the US economy of doubling of atmospheric CO2 is
    approximately 12.63 billion, or 0.26 of
    national income.
  • Clines estimate (1992) was higher (2 of
    national income) and included nonmarket impacts.
  • More recent studies tend to report damages on a
    per ton of carbon basis, allowing for better
    comparison with cost of reducing emissions.
  • Damages from global warming may be even greater,
    because some types of impacts, in particular, the
    impacts on ecosystems and the reduction in
    ecological services, are not factored into global

What are the Consequences of Global Climate
  • One particular aspect of global warming that is
    likely to be quite costly is the effect of
    sea-level rise on low-lying Third World
  • In the future, these areas may be lying entirely
    under water or at such a low elevation above sea
    level that they become even more vulnerable to
  • This may result in a rise in movement of
    refugees, growing political destabilization and
    rising costs associated with relocating refugees.

What are the Consequences of Global Climate
  • Ausabel (1991) argues that the most significant
    damages from global warming may lie in damages to
    natural systems, particularly those already under
  • The climate change taking place with global
    warming is at a relatively rapid pace. This pace
    is far too rapid for a forest to adjust by
    natural selection.
  • Finally, there is the very important impact of
    global climate change on the distribution of
    tropical disease.

Global Warming Policy
  • Many characteristics of the global warming
    problem make it substantially different from
    other environmental problems. These include
  • The need to deal with many different pollutants
    --- all greenhouse gases
  • The fact that damages dont occur at the same
    time as emissions
  • Uncertainty in all aspects (benefits and costs of
  • Importance of equity issues, both across
    generations and across countries
  • Need to achieve international cooperation ---- no
    world government

The Necessity to Deal with Many Different
  • One cannot merely look at the cost of reducing a
    kilogram of carbon dioxide emissions and compare
    it to the cost of reducing a kilogram of N2O.
    Each greenhouse gas has a different level of
    radiative forcing (heat absorbing potential), and
    each has a different atmospheric life.
  • The IPCC developed a global warming index (GWPI)
    to measure the equivalency of greenhouse gases.
  • While a GWPI can measure the warming potential
    associated with two gases, it does not consider
    the different time paths and possible different
    potential long term damages.

Policy Situation
  • Taxes vs. Permits (cap and trade), Aldy
  • International
  • Kyoto and possible alternatives
  • EU Emissions Trading
  • Harvard Policy International alternatives ppt
  • Current Climate Negotiations UN Climate Change
    Conference in Bali, where to from here?

Emissions Taxes for GHGs (Primer by Joe Aldy)
  • Financial incentive of some form is needed to
    curb CO2 emissions
  • Cap and trade (permits) or a tax are the two most
    realistic choices
  • Focus of this piece is to explain how a tax could
    be structured, also provides some nice
    comparisons between tax and permits
  • One approach is an Upstream tax where energy
    producers would pay a tax based on CO2 content of
    the fuels they sell

Emissions Taxes for GHGs (Primer by Joe Aldy)
  • Fees on natural gas, petroleum products, and coal
    would all be different based on their carbon
  • Such upstream fees would could cover more than
    98 of CO2 emissions through relatively small
    number of firms (2500)
  • This means such a tax would be administratively
    straightforward just like an excise tax that
    many fuel suppliers already pay
  • Aside downstream tax is a tax on all products
    based on their usage of carbon inputs, Aldy
    doesnt discuss

Emissions Taxes for GHGs (Primer by Joe Aldy)
  • What will happen to cost of energy and products
    that use energy?
  • They will increase, and the costs will get passed
    on through the energy system
  • Incentives for alternative fuels will be created
  • Incentives to find lower energy approaches to
    production of all things will be created
  • Emission taxes would generate lots of money for
    the government

Emissions Taxes for GHGs (Primer by Joe Aldy)
  • Example of an tax schedule (source not cited)
  • Year Tax rate Est. CO2 decline
  • 2015 15/ton CO2 5
  • 2020 20/ton CO2 9
  • 2030 50/ton CO2 29
  • Revenues from such a tax would be substantial,
    95 billion in 2015 alone, what could be done
    with those?

Emissions Taxes for GHGs (Primer by Joe Aldy)
  • Tax revenues could be spent on
  • Lowering other taxes (reduce income tax, etc.)
  • Paying off federal debt
  • RD on alternative energies
  • Medicare, social security, etc.
  • Stupid wasteful things, government inefficiency
  • Lowering other taxes that are distortionary (such
    as income taxes) could really benefit the economy

Emissions Taxes for GHGs (Primer by Joe Aldy)
  • Sequestration could be included in such a
    program, a firm that captured and stored C could
    generate credits and sell them to another firm in
    lieu of their fees
  • If this starts to sound like a permit system, you
    are right, it starts to be a hybrid, a true tax
    system would pay a negative tax to sequestration

Emissions Taxes for GHGs (Primer by Joe Aldy)
  • Comparing a tax to cap-and-trade
  • 1. How will they compare in terms of costs to
    consumers? If permits are given out free, wont
    firms hold the line on prices and not pass on
  • Nope. Firms will consider the opportunity costs
    of those permits, what they could sell them for
    rather than use them, in their pricing.
  • There will be differences in the distribution of
    cost increases depending on whether permits are
    free or must be purchased by firms

Emissions Taxes for GHGs (Primer by Joe Aldy)
  • Comparing a tax to cap-and-trade
  • 2. How does a cap-and-trade compare to a tax in
    terms of tax revenues? Depends on whether some or
    all of the permits are auctioned or sold and at
    what price
  • 3. How do they compare in terms of certainty?
  • Aldy points out that a tax provides a certain
    cost, if there are changes in firms economic
    conditions from year to year, they can vary how
    much they purchase vs how much they pollute
  • Since its the total amount of GHGs in the
    atmosphere that matter, if there are more than
    average emitted in one year, thats ok, as long
    as they are offset in future years.

European Union Emission Trading Scheme (Wikipedia)
  • Largest multi-national, emissions trading program
    in the world
  • Major component of EU climate policy
  • Phase I covers more than 10,000 plants,
    factories, etc
  • Covers about half of the EU's emissions of CO2
    and 40 of its total greenhouse gas emissions

European Union Emission Trading Scheme
  • large emitters must monitor and annually report
    their CO2 emissions, must have permits to cover
    their emissions
  • Emitters get the allowances for free from the
    government (initially),
  • then may purchase them from others
    (installations, traders, the government.) or can
    sell if they have more than they need

European Union Emission Trading Scheme
  • Trades can occur by
  • privately, moving allowances between operators
    within a company and across national borders
  • Using a broker or over the counter to privately
    match buyers and sellers
  • trading on the spot market of one of Europe's
    climate exchanges (e.g., European Climate

European Union Emission Trading Scheme
  • Phase I 2005-2007 ----- practice
  • first year, 362 million tonnes of CO2 were traded
    on the market for a sum of 7.2 billion,
  • price of allowances hit its peak level in April
    2006 of about 30 per tonne CO2,
  • fell in May 2006 to under 10/ton when countries
    indicated large emission caps so there was no
    need for them to reduce emissions.
  • trading price of 1.2 a tonne in March 2007,
    declining to 0.10 in September 2007.
  • Prices currently low can check climate exchange

European Union Emission Trading Scheme
  • Phase II 2008-2021 ---- first Kyoto requirements
  • scope expanded
  • Clean Development Mechanism and Joint
    Implementation Credits
  • Aviation emissions included from 2010
  • Four non-EU members, Norway, Iceland,
    Liechtenstein and Switzerland

European Union Emission Trading Scheme
  • In January 2008, the European Commission proposed
  • centralized allocation (no more national
    allocation plans),
  • auctioning a greater share (60 ) of permits
    rather than allocating freely,
  • inclusion of the greenhouse gases nitrous oxide
    and perfluorocarbons.
  • Also, revising caps foresee for an overall
    reduction of greenhouse gases of 21 in 2020
    compared to 2005 emissions.

(No Transcript)
US Chicago Climate Exchange
  • CCX is a self-regulatory exchange that
    administers a voluntary, legally binding pilot
    program for reducing and trading greenhouse gas
    (GHG) emissions in North America, with
    participation of Offset Providers from Brazil
  • How does it work?
  • CCX members commit to reduce GHG emissions 1 per
    year over the years 2003 through 2006 (1998
    -2001 average)
  • Members that reduce their emissions below the
    required level can sell surplus emission
    allowances on the exchange or bank them.
  • A member that cannot achieve the reduction target
    internally can meet its compliance commitment by
    purchasing emission allowances through CCXs
    electronic trading platform or purchase
    project-based offsets.
  • Eligible offsets can come from methane collection
    and carbon sequestration projects.
  • Why does anyone join?
  • Value of being a green firm
  • Costs pretty low, 2 ton
  • Learning, early mover advantage,.

Iowa Farm Bureau
  • Exchange Soil Offsets (XSOs)
  • Commit to 4 years conservation till or grass
  • Annual certification by IFB
  • Price paid from going rate on CCX, less 10
    aggregator fee
  • Goal of 100,000 acres
  • Also aggregating Exchange Methane Offsets and
    Exchange Forestry Offsets

Harvard Project powerpoints
UN Climate Change Conference, Bali, 2007
Summary from Stavins and Aldy,
  • The conference was a "qualified success."
  • Before Bali, we observed that it will be good
    news if there's no bad news coming out of the
    negotiations.  This was achieved, and then some.
  • For the Bali Roadmap, countries agreed to
    continue working together, and they have agreed
    on certain measures.
  • The ultimate destination was not decided.  That
    was not feasible and was not necessary.
  • But the direction was decided and the vehicle for
    travel was augmented in positive ways

UN Climate Change Conference, Bali, 2007 Key
Takeaways Stavins and Aldy,
  • Specified intent to complete negotiations on
    post-2012 plan by the end of 2009. 
  • The Intergovernmental Panel on Climate Change's
    fourth assessment report was recognized as the
    authoritative report on the science of climate
  • A shared vision for long-term action, including a
    long-term emission reduction goal, will be
    addressed through the Bali action plan process.
  • All developed countries are expected to undertake
    mitigation commitments or actions, including
    quantified emission targets.
  • Developing countries, for the first time, offered
    to include "mitigation actions" in the next
    international agreement.  It is not clear yet
    what these plans of action will be, and to what
    extent they will depend upon prior actions in the
    industrialized world, but this is a step in the
    right direction.
  • Work will commence on methods to demonstrate
    emissions reductions from retarded deforestation
    and design policy incentives for reducing
    emissions from deforestation and land
    degradation.  (Deforestation from a range of
    countries, including Brazil and the Congo
    accounts for roughly 20 percent of greenhouse
  • Adaptation is now getting much more attention.
    The Bali plan calls for efforts to assess the
    vulnerability of low-income countries, develop
    capacity, promote risk management and risk
    reduction efforts, and facilitate resilience
    through economic diversification.
  • Work will commence on a program for technology
    transfer to developing countries as well as
    cooperation on the research and development of
    new climate-friendly technologies.